Spotlight THE. At the July, 2015 Board Meeting, On January 21, the Pennsylvania Municipal

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1 THE Spotlight PMRS Embarks on Major Upgrade Municipalities and Members to Benefit At the July, 2015 Board Meeting, the Board voted unanimously to approved a major upgrade to the agency s current retirement pension software. Since 1998, PMRS has utilized a pension administration software program called CPAS. This company, based in Toronto and owned by the Xerox Corporation, has greatly helped PMRS move from an antiquated paper and pencil system to an advanced and complex software system that supports the comprehensive requirements of government run plans. Currently, CPAS 5.3 allows PMRS staff to complete accurate and timely retirement estimates for members, alter member records, produce 1099s, process retiree payroll and generate member statements, to name but a few of the many functions it supports. On January 21, the Pennsylvania Municipal Retirement System Board met for the first of its six meetings for At the start of the meeting, Barry Sherman,a retired police officer from Middlesex Township in Cumberland County, was unanimously elected as Board Chairman. Mr. Sherman has served on the Board since In accepting the chairmanship, Mr. Sherman thanked the Board for the confidence they had in him with their vote. In looking ahead, Chairman Sherman said he is committed to serving In the new 5.7 version, these and other processes will be automated further. One of the most-anticipated functions of the new version of the software will be enabling Internet access to the application for members and municipalities. For instance, an employee in municipality X who is anticipating retirement will be able to access retirement estimate calculations. Furthermore, they will be able to access a bonus financial planning tool in CPAS to assist a member with their post retirement finances. This tool will help them see a complete picture of their net worth and guage their financial health. A great benefit for our municipal contacts will be the ability to submit the Quarterly Report of Contributions (PMRB 21) online. They will no longer be required to enter financial data into (See Upgrade..., Page 2) PMRS Board Elects New Chairman PMRS Board Chairman Barry Sherman APRIL 2016 IN THIS ISSUE PMRS Upgrade...1 New PMRS Board Chairman Investment Return...2 Meet the Technicians...3 Probationary Periods...3 Calendar of Events...4 Members Insert Sharing the Beauty of Pennsylvania As Pennsylvania emerges from another long winter, it can eagerly look forward to the promise of spring. With each passing day, more and more precious moments of daylight are available to get outside and witness the subtle changes taking place throughout the Commonwealth. From the sight of a dainty goblet-shaped crocus pushing its way through the snow to the crack of the bat marking the return of the boys of summer, Pennsylvanians can bask in glory in all the sights and sounds of a Pennsylvania springtime. The gray drabness of winter is replaced with a coat of color only Spring can provide. This spring, get outside and enjoy nature s rebirth and know that April is a promise that May is bound to keep. the PMRS members to the best of my abilities and ensuring the solvency of the pension plan. I look forward to serving our members in this new role to which I have been elected and being a part of an organization that is fiscally responsible, well managed, organized and supported by a team of dedicated employees. Following the election of Mr. Sherman, the Board elected George Malikovic, a township commissioner from Swatara Township as Vice-Chairman for the 2016 calendar year. He has served on the Board since Vice-Chairman George Malikovic THE Spotlight...1

2 (Upgrade..., cont.) small boxes on forms and having to mail the forms to PMRS. Instead, all the financial data will be uploaded online and submitted electronically. This will not only cut down on paperwork but will hopefully create greater efficiency and less reporting errors. Quarterlys can be submitted instantly over a secure website. Another benefit will be the ability to coordinate contact and pre-retirement seminars with instant updates of planned meetings. For PMRS, this upgrade will not only help reduce a massive amount of paperwork, but allow for a more efficient flow of information among staff. The staff will also see an overall improvement in automated member and retiree processing functions. Furthermore, this upgrade will allow for greater interaction between PMRS and its partners in the Department of Treasury and the bank custodian. According to Project Manager Doug Baker, we are looking forward to the new features that will be available in the latest version of the pension administration software. These features will offer automated processes benefitting our staff as well as our members and municipalities. The implementation of this new software will cost the PMRS $895,000. This investment in more modern software functionality will translate into overall cost savings by leveraging more automated business functions. It is the first update to the pension administration software undertaken since 2004 when it went from version 3.5 to 5.3. The upgrade project was kicked-off in December of 2015 and is expected to be completed in the third quarter of PMRS hopes to begin with a couple pilot municipalities and members to test out the upgrade before it goes live across the Commonwealth. PMRS will explore all training avenues as they relate to the end user function whether they may be through seminars, forums or online tutorials. Uneven Recovery Gives PMRS a Flat Return for 2015 The United States economy is gradually emerging from a period of considerable turmoil. Since the depths of the recession in 2009, the economy has been recovering slowly yet unevenly. This uneven recovery is reflected in the PMRS return for According to Richard Dahab, the PMRS Investment Consultant, the fund saw a return of 0.1% for In his yearly performance report, Mr. Dahab noted several positive economic signs that included a robust job market, cheaper gas, low inflation and a strengthening housing market. Despite the good news on the U. S. economy, the stock market did not make any meaningful gains in 2015, despite major indexes hitting new highs. A slump in oil prices, a slowdown in China and a strong dollar that compressed exports were all a drag on corporate earnings, causing the stock market to finish the year flat. While last year s big winner was in large cap equity, this year it witnessed a sharp drop. Though the large cap equity posted a strong fourth quarter with a return of 6.0%, over the trailing year this segment returned 1.8% which was 0.4% greater than the benchmark s 1.4% return. However since 1985, this component returned 10.5% on an annualized basis. Small cap equity also struggled. In 2015, this component returned -5.2%, which was 0.8% less than the benchmark s -4.4% return. Weaknesses in both emerging and international markets posed a challenge for investors in In the PMRS portfolio, emerging markets returned -15.1% or 0.2% greater than the benchmark s -15.3% return. It was a slightly better story in the international markets where PMRS saw a return of 0.3%, that was better than the benchmark s -0.6% return. In the PMRS portfolio, the big winner was real estate with a return of 11.2%. This was 2.1% less than the benchmark of 13.3%. Since 1985, this component returned 6.9% annualized. Fixed income returned 0.6% which matched the benchmark. Since 1986, this component has returned an annualized 6.8%. The PMRS portfolio finished 2015 strong with a gain of 2.4% in the fourth quarter. Its overall return of 0.1% landed it in the 43rd percentile. Since 1985, the portfolio returned 8.6% per annum. Asset Allocation Large Cap Equity 26.1% Small Cap Equity 14.8% International Equity 14.1% Emerging Markets 8.8% Real Estate 18.0% Fixed Income 16.5% Cash 1.7% Total Portfolio 100.0% Total Value $1,996,572,502 The PMRS Pre-Retirement and Contact Seminars Scheduled for 2016 May 13 & 14: King of Prussia August 19 & 20: Greensburg October 14 & 15: Clarion November 18 & 19: Harrisburg The contact seminars are held on Friday and the pre-retirement seminars are held on Saturday. The dates are all tentative and subject to change. More information will be forthcoming prior to each seminar. 2...THE Spotlight

3 Every morning a little past 7:45, the phones begin ringing in the PMRS office in Harrisburg. A majority of those incoming calls are transferred to our team of retirement technicians who are the first point of contact for many of our members. In this issue, we would like to introduce you to our four retirement technicians so you get to know the faces behind the names. We like to think we are on the front lines of customer service for PMRS, says Bryant Taylor, a Retirement Technician Supervisor. Members contact us for an array of personal issues from something as simple as changing an address to the more life changing events like anticipating retirement to reporting the death of a spouse. We want to help make their decisions and this process as easy as possible. In the January 2015 issue of The Spotlight, we presented a rather extensive overview of probationary periods and how they impact your plan members and your municipality. Here is a shortened primer on that important topic. The three most important facts regarding probationary periods are; 1) PMRS does not mandate that a municipality implement a probationary period - it is established and maintained at the municipality s discretion, 2) it may not exceed one (1) year in length and 3) the probationary period put in place by a municipality must be applied uniformly to all eligible employees hired on and after the date of establishment. In the event a municipality would like to establish, eliminate or amend a probationary period it may do so by sending a letter of instruction to our office. It should include the effective date of the change. Any employee placed in a probationary status for purposes of pension will Meet Our Retirement Technicians Bryant has worked for PMRS since 2007 when he started out as a Clerk Typist and has gradually worked his way up in the agency. He has been the Retirement Technician Supervisor since November of Lorain Payne, who handles townships and all the regional plans, has high praise for the members and wants them to know this job is more than just shuffling papers. I get great satisfaction from talking to the members and providing the best customer service I can, she says, they make it all worthwhile. The two newest staff members actually started the same day in July of Lynn Wadley, who handles cities and (standing) Lorain Payne, Lisa Southers (sitting) Lynn Wadley, Bryant Taylor Probationary Periods Refresher receive neither monies nor service retroactive for the period of time back to their date of hire. It must be understood that the reverse would hold true as well. If a municipality has no probationary period in place then any employee hired by the municipality who is eligible for enrollment should be enrolled as of their date of hire. It is important to note that the improper application of a probationary period may result in unnecessary additional financial impact to the municipality. While we acknowledge that many municipalities implement a probationary period in order to be consistent with the provision of other benefits (e.g. health insurance) made available only after an employee has been on complement for some set period of time, we must close this article by emphasizing two final points which more often than not distinguish the pension benefit from other employee benefits; 1) any payment made by the municipality (excluding authorities, loves the learning process and serving the members. She especially enjoys working with potential retirees. They are so excited about retiring and want to know what to do next. Helping them is my favorite part of this job. Lisa Southers, who does counties and boroughs, shares Lynn s enthusiasm for helping the members and notes the diversity of the job. One day I m enrolling new members and the next day, I m helping another member process their retirement. But of course none of us enjoy taking those calls who need to report a significant other or parent has passed away. This team s goal is to work together, learn together and provide superior customer service to our thousands of members. the $20 annual administrative fee) for the purpose of funding an employee s pension benefit does not immediately become a sunken cost similar to that such as a health insurance premium payment and that is because 2) almost all plans have established a Vesting period - again, set by the municipality - which requires that an employee be a member of the plan for a number of years prior to their being entitled to any municipal assets. Unless eligible for some other plan benefit, such as Early Retirement or Disability, any employee who separates employment prior to fulfilling the terms of the Vesting period (as well as Normal Retirement Age) would be entitled solely to their individual member contributions and interest. Any contributions made on their behalf by the municipality, and interest earned on same, would function as a gain to the plan and would serve as credit toward future costs. Contact Municipal Services for additional information regarding this topic. THE Spotlight... 3

4 Survey Says! Have you noticed PMRS is sending out more surveys? We hope so. In an effort to provide better customer service to both our members and contacts, PMRS has begun utilizing Survey Monkey. Survey Monkey is an on-line survey development cloud based company. Its motto is the best decisions start here and we feel this was a great decision for PMRS to utilize this innovative company as a means of providing more effective communications with our members. Plus its fast, cost-effective and easy to tabulate the results. Since its implementation last spring, PMRS has been able to allow online registration for both pre-retirement and municipal contact seminars. Furthermore, it allows for us to obtain additional information to help better plan these seminars. In addition, it was recently CALENDAR OF EVENTS used to permit our contacts to verify some important GASB 68 information. Going forth, we hope to be able to utilize it to gain greater information from our members as they relate to your needs, PMRS services and even the future direction of this newsletter. So look for future survey requests from us and help us help you by completing the surveys. Together, we can use this tool to strengthen our relationships and better serve you, our valued members. S M T W T F S 1 2 HIGHLIGHTS* * See PMRS web site for the full 2016 calendar APRIL April 1 Deadline for filing the ad hoc reimbursement form (AG-490) with the Auditor General s Office MAY S M T W T F S S M T W T F S May 13 May 14 May Contact Seminar in King of Prussia Pre-Retirement Seminar in King of Prussia Spring is a great time to review and update all your records. This can include your contact information with PMRS. Make sure we have the correct contact name, phone number and address JUNE June 30 Comprehensive Annual Financial Report posted on PMRS website Retiree checks mailed Holiday (office closed) Board Meeting Quarterly Reports mailed MMO Mailing Muncipal Contact Seminar Pre-Retirement Seminar ra-staff@pa.gov OFFICE HOURS: Monday thru Friday 7:45 a.m. to 4:15 p.m. EDITORIAL BOARD: Sean Christine, Heather Seilhamer, Tonna Hoot, and Anthony Pinto EDITOR: Tom Garrett 4...THE Spotlight

5 April 2016 PMRS Member s Corner Is My Pension Safe with PMRS? For Distribution to Municipal Employees The news headlines are full of fears concerning our economy. Employees wonder if they will ever see a retirement benefit from Social Security and now there is concern about the deteriorating solvency of local governments and the pension plans they provide to their employees. The Auditor General of Pennsylvania released a report for all municipal pension plans titled Municipal Pension Funds in January of The words in bold print on the front page state 562 municipalities administer pension plans that are distressed and underfunded by at least $7.7 billion. That is alarming. On page four of that report there are three charts. The third chart is actuarial data from January 2013, for the cities of Philadelphia and Pittsburgh, respectfully. They collectively make up $5.81 billion of that $7.7 billion. What s creating the Pension Crisis in local government? A pension plan is considered distressed if the actuarial value of assets (income) does not meet or exceed the actuarial liability (expenses). Listed in the above-mentioned report on Municipal Pension Funds that was published by the auditor general, local government pensions become financially distressed for three basic reasons: the promise of an excessive rate of return, increase in life expectancy, and sizable accrued leave and overtime payments called spiking. The first reason is the use of an excessive rate of return. The stated rate of return is the interest rate that the pension provider states they will pay to their members based on their investment performance. The Pennsylvania Code has noted in Title 16 that the current interest rate assumption is to be no lower than 5% and no higher than 9%. According to the Auditor General s report, there are 560 defined benefit pension plans that are currently stating a 5.5% rate of return. Of those 560 plans, there are 26 plans statewide that are below 70% funded. Pension plans are funded by investment income, employee contributions, and municipal contributions. Therefore, if a pension plan s investments are not earning the stated rate promised to the members additional funding must come from one or both of the other two sources to maintain an adequate funding level. If these three sources of revenue do not provide enough income to cover the plan s expenses, the pension plan will become underfunded. The second reason local government pensions become distressed is that people are living longer. According to the Auditor General s January 2015 report, some local government pension statutes were written as far back as the 1930 s, when the average life expectancy was 60 years of age. Current life expectancy is now more than 20 years longer, making the average life expectancy 80 years of age. Pensions are being paid out to retirees much longer than originally anticipated. The third reason is called Spiking. Spiking is when an employee acquires a sizable amount of unused leave or overtime which is then added to the final year(s) of base salary. This artificially inflates the base salary used in calculating pension payments. The result is a higher monthly pension payment.

6 Why is PMRS not in distress when so many other pension plans are? PMRS is dedicated to providing local government pension administration. That is our only focus. We would like to assure you that PMRS is an independent agency and is not impacted by the State Employees Retirement System (SERS) or the Pennsylvania School Employees Retirement System (PSERS). Secondly, we would like to assure you that not only are you a member of the single largest municipal pension plan provider in Pennsylvania but also that we have solid funding levels. As noted in the PMRS Comprehensive Annual Financial Report (CAFR) released for 2014 from the depth of the 2008 financial crisis to January of 2014, PMRS funded ratio, on a market value basis, has increased from 81% to 97% and is among the highest of any state-level retirement plan the U.S. The PMRS Membership Services Team Division Chief Sean E. Chris ne, CFP Oversee division staff, process monthly payroll for re rees, and produces 1099-Rs Re rement Counselor Heather Seilhamer Counsels members approaching re rement on the various op ons available to them Benefit Specialists Beth Malone Handles complex issues such as disabili es and Domes c Rela ons Orders Dan Worthington Reviews all pending calcula ons of re rement benefits that relate to members Re rement Technicians Complete benefit es mates and handle the majority of administra ve changes for members Bryant Taylor (Supervisor) Lorain Payne (Townships, Regionals) Lisa Southers (Coun es, Boroughs) Lynn Wadley (Ci es, Authori es) As of October 31, 2015 we had assets totaling $2.04 billion. We administer 1,000 plans that include 10,000 active and vested members as well as 5,000 retirees. Of the 1,000 pension plans that PMRS administers, 94% are more than 80% funded. The management of your money is supervised by a Board of Directors (several of whom are actual members). One of their many responsibilities is to set the stated rate of return (interest rate). The current stated rate of return is 5.5% and is reviewed annually. As time changes and people live longer, there must be updates in pension plans. Just recently, the longevity factors that are used when calculating pension payments were updated. The new updated factors take into account that you will live a longer life. Our goal is to see that you enjoy the quality retirement you deserve. PMRS will be here for you as you make your retirement years the best years of your life. Member Support Heather Gebhart Maintains member data, including (but not limited to) addresses, beneficiaries, and re ree payment instruc ons Contact Us... Hours Monday - Friday 7:45 am - 4:15 pm Physical Address Eastgate Center 1010 N. 7th Street Suite 301 Harrisburg, PA Mailing Address PO Box 1165 Harrisburg, PA Phone (717) or (800) Fax (717) Internet